In celebration of National Financial Literacy Month, we are unveiling our second rankings of the most financially smart states. Our rankings aim to provide an independent assessment of the state of financial literacy in America. We utilized various data points to determine what states have the highest financial IQ.

D.R.E.A.M.'s Top 10 States for Financial Literacy (2016)

1. Michigan

One of seven states that mandate students sit for a standardized test for personal finance in H.S; the unbanked population is 5.7%.

2. Alabama

One of 17 states that mandates high school students take a personal finance course prior to graduation; residents maintain an average of $2,110 in credit card debt.

3. Utah

One of 45 states that mandates personal finance be included in K-12 education; the unbanked population is 3.3%. (6th lowest in the country)

4. Missouri

One of two states that mandates high school students take a personal finance course prior to graduation and sit for a standardized test for personal finance.

5. West Virginia

State residents score an average of 72.86% on a national financial literacy exam. (2nd highest score in the country)

6. Tennessee

One of 17 states that mandates high school students to take a personal finance course prior to graduation; residents maintain an average of $2,270 in credit card debt.

7. Idaho

The unbanked population is 5.4%; residents maintain an average of $2,550 in credit card debt.

9. North Dakota

State residents score an average of 70% on a national financial literacy exam; the unbanked population is 3%.

8. Texas

One of seven states that mandate students sit for a standardized test for personal finance in H.S; residents maintain an average of $2,760 in credit card debt.

10. Arkansas

The unbanked population is 12.3%; state residents maintain an average of $2,050 in credit card debt.

D.R.E.A.M.'s Top 10 States for Financial Literacy (2016)

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Inside the Rankings

Our rankings and research highlight that although financial literacy is largely determined by individual demographic characteristics it may also be shaped by the state in which a person resides. We accounted not only for the financial education policy within each state but also the financial practices of state residents – ranging from checking/savings account ownership to levels of credit card debt.

Interesting findings in this year’s data - three of the largest states (based on population) did not make the top 10: California, Florida, and New York. Moreover, despite having a high density of wealth and some of the richest zip codes per capita, no states in the Northeast made our top 10 list.

Notably, there has been significant improvement in financial education policy on the state level since our initial ranking in 2013. However, the U.S. largely remains without a tangible national financial educational strategy that is implemented consistently nationwide. 45 states now include personal finance standards in K-12 education. But, only 5 states require that a designated personal finance course (not to be included in an economics course) be taken to complete high school graduation requirements. Lastly, only 7 states require a standardized test for personal finance.

Behind the Numbers

In order to distinguish the states with the highest financial IQ, our analysis was derived using a proprietary formula which analyzed the following: 1) education policy in each state 2) performance on national financial literacy exams/surveys, 3) financial behavior.

We first compiled data on 8 relevant metrics with data from all 50 states and Washington, D.C. Our rankings measure states in three broad categories: Policy (50%), Behavior (35%), Test/Survey Performance (15%). We then calculated the overall score for each state using a weighted average across all metrics and ranked the states accordingly. Here's how the numbers break down:

State Policy: 50%

We analyzed each states financial education policies utilizing information garnered from the Council for Economic Education, the JumpStart Coalition for Personal Financial Literacy and state government sources.

Financial Behavior: 35%

Our research included analysis of the unbanked and underbanked populations in each state in addition to credit card debt per capita by state provided by the FDIC.

Test/Survey Performance: 15%

We utilized the results from Wallethub’s WalletLiteracy Survey and the Financial Educators Council National Financial Literacy Test.

About the Author: Femi Faoye is the Co-Founder and Chief Executive Officer of D.R.E.A.M. He’s a staunch and passionate financial literacy education advocate. You can follow his insights on twitter @Femi_Faoye.

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